Question

What is the relationship between cost accounting financial accounting and managerial accounting?

Answer 1

Financial Accounting is related to recording of historical transactions in order to find out what is the ultimate profit or loss of the business for a period.

Cost accounting is related to estimation of costs, and it helps in identifying and controlling the unnecessary expenses so as to minimize the total cost, there by increasing the revenue or profit.

Management accounting is the accounting that helps in important decision making like budget decision, product mix decision, make or buy decision, shut down decision etc.

Remember - Previously cost acct and management act used to be used differently. But now there are only 2 distinct braches of accounting, 1- Financial Accounting, 2-Cost and Management Accounting.
Financial Accounting needs to be done following the guidelines issued by Accounting bodies i.e. accounting standard and there are specific formats for everything you do. But there is no specific format for recording the transactions in Cost and Management accounting.

Example - There are 3 Units in a company having the following data

Revenue from Unit A - 30000 Unit B - 20000 Unit C 10000
Expenses of Unit A - 20000 Unit B 15000 and Unit C 12000

So now, profit generated from Unit A = 10000 Unit B = 5000, and
Loss generated by Unit C = 2000

Now what we have done is called financial accounting, i e ascertaining the profit or loss genearated by each unit. The role of financial accounting ends here.

But Cost and Management Accounting will observed that Unit A and B are profitable for business where as Unit C is making loss. So now Cost and Management Accountant would suggest the Company to cut the expenses of Unit C in particular so that it can earn profit and if cutting expenses is not possible, it may suggest to close down unit C as it is a loss making unit.